Odisha chit fund scam: Microfinance violated RBI guidelines

Reported by Santosh Jagdev
Bhubaneswar, Dec 16:

Contrary to the claims made yesterday by Durga Prasad Mishra, the former Managing Director (MD) of Mircofinance Limited, arrested in connection with the Odisha chit fund scam, the company had violated the terms and conditions set by the Reserve Bank of India (RBI) when it was granted a licence to run its business, crime branch (CB) officials said.

During his brief interaction with the media at the Capital Hospital here yesterday, Mishra had claimed that his company was running its operations strictly according to RBI guidelines.

After finding that Microfinance Limited (MFL) had violated the terms and conditions under which its had been granted a certificate of registration under the ‘A’ category in January 21, 2001, which allowed it to accept public deposits as a non banking financial company (NBFC), the RBI had downgraded its registration to the ‘B’ category on September 18, 2012. The downgradation permitted MFL to provide loans to the public, but barred it from collecting deposits.

But instead of abiding by the restrictions imposed on it by the RBI, MFL continued collecting deposits from the public.

Towards the end of December, 2012, 12 cases were filed against the company at various police stations in the state. After the crime branch of Odisha police conducted raids at its branch offices spread across the state, MFL changed the name of the company to Micro Leasing Funding Private Limited (MLFPL) and continued collecting money from the depositors.

Soon, MFL started expanding its business adding several sister agencies like Micro Roadways, Micro Constructions, Micro Ispat, hotels, Micro television,  Micro Media and Entertainment and education.

To continue with their business, the directors further approached various state government departments like MSME, Finance and Panchayati Raj seeking approval to transact business without any hindrance. But the government rejected the approval on July 2013. In December 2013, Durga Prasad Mishra handed over the MD’s post to Ashok Pattnaik, the CB officials informed.

After getting a letter from the RBI about the illegal transactions by the MFL, the government ordered the Economic Offence Wing (EOW) of the State CB to probe its affairs.

During investigation, the CB officials arrested Ashok Pattnaik on June 4 on charges of duping depositors of crores of rupees. On June 29, they arrested the director of Microfinance Ltd Baikuntha Patnaik and Ajay Swain, personal assistant (PA) to the commissioner-cum-secretary, Panchayati Raj on the charge of money laundering and issuing official letters without due permission.

Swain, during his stint as PA to the commissioner-cum-secretary, Panchayati Raj, had issued a letter in the name of the former to all district collectors not to take action against the Microfinance Ltd, a non-banking finance company, and allow it to continue its business since it had got prior permission from the state government.

Durga Prasad Mishra, who had been on the run since March 2013, was finally arrested by the CBI, which had taken over the probe into the chit fund scam under Supreme Court orders in May this year, on Sunday.